KCB says South Sudan unit still profitable despite political chaos

KCB South Sudan’s banking hall in Juba. The bank was forced to close three branches in the country after violence broke out. Photo/FILE  Nation Media Group

By George Ngigi Business Daily

In Summary

• The bank has been forced to close three of its 21 branches in the world’s newest nation after it plunged into chaos in mid-December. However, the lender has its hopes pegged on calm remaining in the country’s capital and financial centre, Juba.
• The violence is not expected to have a major impact on the 2013 full-year performance of the lender as it stated in December but the interruption and destruction of businesses could affect this year’s outturn.
• The warring factions in the country signed a ceasefire on Thursday last week, but there is still tension in parts of the vast country.

Kenya’s largest bank by assets, KCB, expects its South Sudan operations to remain profitable despite political turmoil in the country which has disrupted economic activities.

The bank has been forced to close three of its 21 branches in the world’s newest nation after it plunged into chaos in mid-December. However, the lender has its hopes pegged on calm remaining in the country’s capital and financial centre, Juba.

KCB made the disclosure in a conference call with research analysts at Kestrel Capital, allaying concerns that the business which had proved to be highly profitable for the lender would dip into the red.

“Management indicated the bank will continue with its operation in South Sudan and expects to draw positive returns,” said Kestrel Capital in a note to its clients following the conference call.

READ: KCB to continue operations in conflict-hit South Sudan

“The bank will definitely be affected by the disruption of operations in the country but is yet to estimate the impact, which management however advises will be minimal given that the bulk of its business is in Juba which is the key financial state,” it added.

The warring factions in the country signed a ceasefire on Thursday last week, but there is still tension in parts of the vast country.

KCB reported Sh15.2 billion in profit before tax in the six months to June of which South Sudan contributed 9.2 per cent or Sh1.4 billion.

The violence is not expected to have a major impact on the 2013 full-year performance of the lender as it stated in December but the interruption and destruction of businesses could affect this year’s outturn.

There are reports that bank branches in areas controlled by the rebels were looted, which could force the lender to book losses and buy new furniture. KCB’s assets in South Sudan stood at Sh46 billion, being 12.2 per cent of its total asset base.

“The bank attributes the rise of NPLs (non-performing loans) to a number of things including higher NPLs registered in some of the subsidiaries — especially South Sudan- due to poor asset quality,” reads the report by Kestrel.

The bank’s NLPs constituted 8.4 per cent of its total loan book in September, higher than the industry average of 5.4 per cent.

More than 100,000 people including 20,000 Kenyans have fled South Sudan since outbreak of violence, further diminishing consumer activity and business prospects in the country.

READ: Kenya traders’ losses mount as Sudan ceasefire talks stall

KCB controls 42 per cent of the South Sudan commercial banking market, which relies heavily on forex transactions given that lending is yet to pick up in the young nation.